What to do if your biggest customer goes bust

For a small company, landing a big-name customer is cause for celebration – but no firm is too big to fail. Here are ten essential steps to help you survive if your main client shuts down.

1. Rapid Response

Do not dither. If there’s anything to be clawed back it must be done fast. If, for example, a company has gone into administration, you need to contact the administrator with proof of invoices issued and make sure you can attend any creditor meetings to give yourself the best chance of getting some money when the company assets are sold. Miss the boat and you’ll end up with nothing! Even then we would suggest that you will be very low down the pecking order for recompense.

2. Track down a skilled insolvency practitioner

Organisations like Company Rescue and Begbies Traynor specialise in cases like these and advise you on the specifics of your case. You will have a vote in the insolvency process, but if you are owed a very large amount of money, that practitioner might well be able to take over the entire case.

3. Take back physical goods

If goods have been delivered but not yet paid for, you are entitled to claim them back (exercising your retention of title claim, in legal speak). But bear in mind that the failed company is in chaos and if you wait for the courts to recognise your claim, you may never see those goods again. Instead, hire a van, drive to where your goods are being stored and ask for them back. In many cases, this will be a far more straightforward approach.

4. Tackle the bad debt.

Having trade insurance makes this part easy, as you can simply issue a claim. If you don’t have insurance, get in touch with the administrators to have a frank conversation about how much of the money you are realistically likely to see and what will happen to the company – e.g. for example, whether it is being restructured, sold or shut down entirely.

5. Figure out where you fit in

If your customer is continuing in some form or another, there may be light at the end of the tunnel for you. Find out who will be handling procurement going forward and call them as soon as you can. They may still need whatever it is that you supply them – opening the door to renegotiated terms that allow them to pay you back gradually by adding money to future invoices (called “overage”).

6. Reassess your cash flow

Whether the customer is lost entirely or you’ve managed to agree overage terms, there is likely to be a gaping hole in your cash flow. Your next task is to work out just how much of a toll this will take on your turnover and profits, figuring out whether you can replace the lost business elsewhere or jiggle your finances to soften the blow. If not, you’re going to have to make some unpleasant money-saving decisions very quickly, before they have time to capsize your company too.

7. Be decisive about redundancies

If losing the client means that you can’t pull through financially, you will need to let people go, especially if the loss has left a dearth of work to do. Work out how much you need to cut from your outgoings in order to survive and how many salaries that will equate to. Then make the announcement in one go – don’t draw it out so that the rest of the team spend months worrying if their jobs are safe.

The sooner you make the decision, the more warning or garden leave you can afford to give employees to help them get back on their feet. Alternatively, if you are sure that the trouble will pass and new customers will be found quickly, employees may be willing to take a temporary pay cut or reduced hours in the short term. Be honest and upfront about the situation.

8. Don’t tell your suppliers

If at all possible, don’t alert suppliers about your troubles unless you really trust that they will be on your side. Otherwise, they may respond by panicking and tightening credit terms, rather than cutting you the extra slack you were hoping for, and your business could end up choked for cash.

9. Seek a cash injection

You’re unlikely to get a loan at this stage without risky personal guarantees, so if you have an overdraft, now would be the time to use it – or you could try to get one signed off fast before any problems start to show. Invoice financing or even discounting could provide much safer short term relief for your cash flow. You could also look into things like renting out hotdesking space in your office to try and rake in some emergency funds.

10. Once the storm passes, take a fresh look at your client list

When a crisis hits, your priority will probably be scrambling for more work from wherever it comes, but as soon as you can, take another look at your client list. Having one or two major clients who you really, really can’t afford to lose is dangerous for your business – even if they never go bust, they could always get bought out or just switch suppliers. Whilst this could vary hugely from business to business, having a client that starts to account for more than around 20% of your income is a liability. If you land a big new customer, or if their orders dramatically increase, don’t rest on your laurels – treat it as motivation bring in new business that will rebalance your client list and put you back in the safe zone.